Inflation is one of the most discussed topics in the world of finances. Every experienced investor and businessman will tell you to never store large amounts of cash in fiat currency, and always invest it in something or inflation will eat it up eventually. Cryptocurrencies are not much different from this, as most cryptocurrencies can be created and more tokens can be added unlimitedly by developers. Because of this, as time passes, more and more coins enter circulation, making this crypto lose some of its value. To combat this, some cryptocurrencies, such as Bitcoin, have introduced halving to their blockchain. But what happens during a Bitcoin halving? This topic is what we will be discussing in this guide today.
What is Crypto Halving
Crypto halving, also commonly referred to as Bitcoin halving, since this is the largest crypto to utilize this function, is a process by which the blockchain cuts the rewards received by miners in half; but there is more behind this. When Satoshi Nakamoto started to work on Bitcoin’s creation, he was angry at the traditional banking system and the way regular fiat currencies are taken care of. This was just after the 2008 market crash, which made millions of people lose their life savings and put some of the world’s leading corporations into bankruptcy. One of the main problems Nakamoto saw with traditional fiat money is that it can be printed by central banks in an unlimited supply. So every time there is an economic crisis, more money is printed, devaluing the currency even further. That’s why, when creating Bitcoin, Nakamoto had one thing in mind; to create a currency that will be deflationary, meaning it will not be created unlimitedly. Because of this, Nakamoto created a system in the Bitcoins blockchain that will help achieve this goal and he called it halving.
Nakamoto created a system, where Bitcoin had a fixed amount of tokens that could ever enter circulation, 21 million to be exact. Every new Bitcoin that goes into circulation comes through the rewards given to miners, and to create a deflationary system Nakamoto introduced halving, which cuts the rewards given to miners in half each time 210,000 new blocks are created. It takes approximately 10 minutes for a new block of the blockchain to appear, and with that in mind Bitcoin’s blockchain gets 210,000 new blocks approximately every 4 years. In other words, halving takes place every 4 years. Currently, for each new block, the blockchain gives out 6.25 Bitcoin to the miners and it gets distributed among those that helped create this block. Since the last Bitcoin halving took place in 2020, we should expect the next halving to take place somewhere in 2024, when this 6.25 Bitcoin will be cut down to 3.125 Bitcoin. It is expected that the last Bitcoins will go into circulation somewhere in 2078.
The impact of Bitcoin halving on the market
Each Bitcoin halving has a major impact on the market, but not an instantaneous one. If we look at the past Bitcoin halvings that took place in 2012, 2016, and 2020, we can see that sometime after halving the price of Bitcoin reached new heights. In the case of the 2012 and 2016 halving, it took Bitcoin around 1 year to reach new peaks, while the 2020 halving only took around 6 months before the price skyrocketed. What this means is that every time Bitcoin is halved, prices remain as they were for some time, but then start to grow and reach new peaks. This is why most people are thinking that the current state of Bitcoin will remain as it is right now for at least a year and a half, and only after the next halving happens, we can expect the prices to go up again. But there are also possibilities that prices will go up earlier or that they won’t go up at all. This is the significance of the Bitcoin halving event and every trader and investor should keep an eye out for the next halving.
FAQs on Bitcoin halving
When is the next Bitcoin halving
Bitcoin halving occurs every time 210,000 new blocks are introduced to the blockchain. Currently, we are roughly 68,000 blocks away from reaching this milestone and it is expected that we will reach it somewhere in mid-2024.